The bill would prohibit private contractors performing public functions from being financially interested in any contracts they approve. Lockyer is sponsoring the bill.

"It just doesn't feel right," Lockyer said of the way the agency is organized.

In May 2008, the Register published "Public Agency, Private Benefit," an investigation that detailed how two private organizations came to control the agency known as California Communities and how private consultants who staff the authority profit from their own recommendations. In August, the California state auditorconfirmed the Register's findings.

The authority was founded in 1988 by the League of California Citiesand the California State Association of Counties, two groups that represent the political interests of city and county governments. The League and CSAC are private organizations, with private staffs, unelected executives and political agendas that some argue are not in the public's interest.

Their members, however, are public entities – and, under state law, cities and counties have the ability to band together to form new agencies out of thin air. That's how the organizations created California Communities. Their member cities and counties exercised their "joint powers authority" to create a new government entity.

California Communities is a public, governmental entity, but it's controlled by the League, CSAC and HB Capital Consulting LLC, a private company that staffs the authority.

California Communities functions as a conduit bond issuer. It provides tax-free financing to private businesses and nonprofits that are building projects to benefit the public. HB Capital's job is to recommend which bonds to approve. However, under the terms of its contract, HB Capital is paid a percentage of the fees generated by each bond issued by California Communities.

In other words, HB Capital has a vested interest in recommending as many bonds as possible to boost its own profits.

Wieckowski's bill would make this arrangement illegal, just as it's illegal for legislators and other state and local officials to have a financial interest in the decisions they make.

"If they are going to perform a public function, they should be held to the same conflict of interest standards as public officials and employees," Wieckowski said in a statement.

Lockyer also sponsored legislation last year that would have undercut California Communities' business plan, but that bill never even got a hearing. He's hopeful this proposal will have a better chance, although the authority and its lobbyist, Gene Erbin, were working hard to stop the bill before it was even introduced.

In a letter dated Jan. 19, Erbin and Jason A. Gonsalves, a lobbyist for a similar agency, the California Municipal Finance Authority, asked state lawmakers to contact them if approached by Lockyer to carry a bill related to conduit issuers.

"We urge you not to introduce a bill on this subject before you have an opportunity to fully discuss this important matter with us," the Erbin and Gonsalves wrote.

In the letter, the lobbyists accuse Lockyer of attacking their agencies in order to drum up business for the treasurer's own conduit issuing authorities.

"In recent years, the State Treasurer's Office (STO) has pursued efforts, including legislation, to disrupt the marketplace by seeking unfair competitive advantage over its competitors, including the CMFA and California Communities," Erbin and Gonsalves wrote. "We have successfully resisted these efforts and will continue to oppose efforts to manipulate the marketplace or place either the CMFA or California Communities at an unfair competitive disadvantage."

That's hogwash, Lockyer says.

"My office and I want (California Communities), CMFA and all conduit issuers to succeed because that would mean more jobs, more health care, more housing and a better environment for California," Lockyer wrote in a Feb. 25 letter to Senate Leader Darrell Steinberg.

"Here's what this debate is really about: ending a business model that violates well-established principles of accountable and transparent government uncorrupted by conflicts of interest. My office's efforts to improve the law governing conduit bond issuers continue to have one objective: to ensure all conduit issuers, including (California Communities) and CMFA, conduct the public's business like the government agencies they are."

He adds: "As joint powers authorities (JPAs), (California Communities) are governmental entities operating with authority provided and limited by state law. But in practice, they're private businesses masquerading as governmental entities. Their business models provide fertile ground for conflicts of interests and virtually no oversight of how their public funds are expended."

Reiterating that Lockyer is anti-competition, Gonsalves said the conduit issuers are prepared to protect their organizations, but he remains optimistic that they can broker a deal with the treasurer.

"Hopefully," Gonasalves said, "we can make a win-win with our old friend, Treasurer Lockyer."

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